Wall Street’s Cell Phone Litigation Problem

It is 1987 and Gordon Gekko stands on a windswept beach with a cell phone to his ear. He is talking on the world’s first mobile phone – the Motorola DynaTac 8000X. It wasn’t cheap back then costing $3,995 – which in today’s terms is close to $9,000. Not surprising only the wealthiest could afford these phones, and Wall Street was the epicentre of an industry that became a global phenomenon over the next decades.

Wall Street execs were the first to use cell phones. They have used them the longest and the most intensively. They were the first to upgrade to more powerful units. It is perhaps not surprising therefore that it is Wall Street firms that are the ‘canary in the mine’ in terms of litigation around the health impacts of long term cell phone use.

The links between brain tumours and cell phones are hotly contested. As telcos fight a growing public relations battle that is flaring through social media, a little known legal case has continued to make its way through US courts.

On 8th August 2014 Judge Frederick H. Weisberg issued a judgement in the Superior Court for the District of Columbia in a long running case alleging that brain tumours of the litigants were caused by cell phone use.

Weisberg did not make a judgement on whether cell phones cause cancer. What he was examining is whether the evidence that was being presented by trial lawyers was permissible under the Court’s rules. To do this he went through an exhaustive process under the Dyas/Frye test which is essentially about whether an expert uses a methodology that is generally accepted in the relevant scientific community to arrive at his opinion.

Weisberg ruled that a number of expert witnesses were permitted to present evidence in the next stage of the trial. But he also made some thought provoking comments:

“If there is even a reasonable possibility that cell phone radiation is carcinogenic, the time for action in the public health and regulatory sectors is upon us. Even though the financial and social cost of restricting such devices would be significant, those costs pale in comparison to the cost in human lives from doing nothing, only to discover thirty or forty years from now that the early signs were pointing in the right direction. If the probability of carcinogenicity is low, but the magnitude of the potential harm is high, good public policy dictates that the risk should not be ignored.”

The significance of Weisberg’s judgement is that he has inadvertently provided an independent verification of research. The research that he has admitted to the next stage of the court process will no doubt be challenged, but the methodology that the researchers have used has been accepted by the Court.

One of the problems that medical researchers in the radiation field have found is that their work is criticised by parties with strong commercial self interests. Weisberg has no such pressures. He is simply a judge doing his job.

The question for investors is what does this all mean?

In the heated discussion about whether cell phones can cause cancer it will be litigation that will ultimately determine the issue. The insurance industry understands this.

In 2010 Lloyds of London produced a paper, Electro-magnetic fields from mobile phones: recent developments, which discussed the potential for litigation. Lloyds stated:

“If EMF is proved to cause an increased risk of brain cancer it is likely the insurance industry will see claims under product liability policies for bodily injury….The issue of asbestos and its implications is widely known throughout the insurance industry, and many comparisons can be drawn with EMF – the initial impression that it was a ‘wonder product’ coupled with potential very long-term serious health issues not understood at the start of its use. Like asbestos any EMF litigation will probably be long and complex – similar issues could occur such as the definition of an actionable injury, policy triggers and apportioning liability….Should EMF prove to cause brain cancer, or any other adverse health effects, it is likely the main effect on the insurance industry will concern product liability claims for bodily injury.”

Lloyds concluded their report stating “With regards to the implication to insurance, as the current scientific evidence stands, it is unlikely that insurers will be liable for compensation for bodily injury on product liability policies. However, as asbestos has shown, new scientific developments coupled with a small number of key legal cases can change the situation very rapidly.”

Insurers have already taken Lloyds’ advice to heart by excluding coverage of radiation risks from insurance contracts.

In the meantime the debate will continue. New evidence is coming out on a regular basis demonstrating the links between cell phone use and cancer. A recent French study for example that came out in May 2014 (see links) found a positive association that was statistically significant for heavy users of cell phones considering life-long cumulative duration.

Whilst the telco industry may fight to the wall on litigation it may be employers that will ultimately bear the brunt of litigation claims.

A significant question for Wall Street firms is how they will manage this risk. Currently Wall Street firms supply and pay cell phone bills for their employees. Work is structured in such a way that it is impossible for an employee to work without a phone.

If a court determines that there is a link between cell phones and cancer we can expect that, because Wall Street has the greatest exposure, it will be first to be hit. Compensation, which would most likely be based on lost earnings, would be significant for an industry that routinely pays out multi-million dollar bonuses.

The question is whether Wall Street is already experiencing claims? There have been high profile Wall Street executives that have passed away in recent years from aggressive brain cancers. Wall Street firms are unlikely to want to proactively disclose litigation but it is a question that should be asked.

Wall Street firms also have some tough decisions to make about managing future risk. If we were to see a change of behaviour in the way firms manage their employees’ cell phones then this may be an indication that they are aware of the problem. At least one Wall Street firm has recently moved to no longer paying cell phone bills for its employees. Employees that have been spoken to believe that this is part of a cost cutting exercise, but wider factors may be at play.

What would Gordon Gekko be doing in these circumstances? The way he was smoking those cigars he may not have made it this far to worry about it. But if he did he would no doubt be shorting his own company.